Business rates revision could hit rural property owners hard
Date of Article
Jun 23 2011

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From April 1 2011, the ceiling is £2,600, drastically reduced from the former level of £18,000 and now embracing a potentially vast number of premises such as small rural work units converted from empty farm buildings in an effort to raise incomes.

In the past, providing units for business start-ups could be achieved at little risk of financial penalty thanks to the business rates relief that applied when they were unused. Lowering this threshold could make as much as £630 million available to the Government but it will be gained by squeezing
landlords who may have little financial room for manoeuvre. The potential effects could be devastating for the rural economy. As the economic situation tightens, financial conditions could
be about to become a whole lot worse for farmers and other rural landowners who have decided to diversify or let unused buildings to tenants.

If the tenant’s business has got into difficulties, they might try to hand back the keys of the premises and walk away. Owners will become liable for business rates on the empty building once any reliefs have expired – as well as having no rent, landlords may also have a considerable extra financial burden that hurts them instead.

If tenants or administrators try to hand back an empty building, owners should do all they can to resist unless, or until, you find an alternative occupant. The tenant may not be providing an income but will still be shouldering the responsibility for the ongoing costs, even if they only represent a growing and unpaid debt. Carter Jonas suggests that property owners should also seek
professional advice before letting property so they can retain control of their asset and who is able to lease it should the first tenant default.

There’s a tendency among some in the rural community to make these arrangements on an informal basis but this can come back to bite the owner. The tenant may have agreed to hand back the premises should the business fail but administrators are likely to take a different view, potentially seeing the lease as an asset that can be sold on to raise funds for creditors.

Sound advice on potential rents and terms of leases, such as rent reviews and conditions of sub-letting or selling the lease, can help owners avoid these pitfalls. The most recent Budget by George Osborne does offer a glimmer of hope for owners of empty industrial buildings. The Chancellor of the Exchequer revealed government plans to inquire into making changes of use between classes of business use, or from business use to residential, exempt from the planning system thus enabling redundant farm buildings to be converted into homes more easily.

With the attraction of barn conversions and similar projects to residential buyers, this could make it far simpler for farmers to dispose of redundant commercial buildings that have been vacant for more than a year and see a realistic financial return.